The importance of legally compliant payment systems

Whatever industry sector your business operates in, it is crucial to understand any governing rules concerning payment systems and schedules.

Case study of a damaging payment mistake

The case of ISG Construction vs Seevic College highlights the importance of maintaining compliance. After completing the first portion of work in a specific building project, ISG Construction issued a payment application for £1.8 million – the total cost of the completed project. Knowing that the work was not complete and that the full project sum was not due, Seevic lodged a dispute.

However Seevic failed to follow the proper procedures before the payment was due, specifically failing to issue a payment notice. A court case decided that because the payment systems procedure was not followed properly, Seevic were liable for the full amount immediately.

SME best practice recommendations

SMEs operating outside construction are not quite so heavily regulated, instead relying on best principles and processes to ensure healthy cash flow both into and out of the business. Businesses wishing to demonstrate best-practice awareness to prospective clients/suppliers can sign up to the Government’s Prompt Payment Code (PPC), administered by the Chartered Institute of Credit Management, which sets out a voluntary standard for handling invoices.

Where signatories breach the PPC, customers are encouraged to report complaints and use the existing late commercial payments legislation to charge interest and debt recovery costs. To help simplify this process, business owners should choose an expert accounting system which includes software to automate many of these functions, such as calculating interest and issuing invoices.

Setting up payment systems or a processing framework that complies with legislation or the PPC code will help businesses stay solvent – and avoid brand-image damaging mistakes such as that made by Seevic College.